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Operations Review:
Exploration & Production
Marathon’s upstream business delivered strong operational results while recording best-ever safety performance. The Company again had strong reserve replacement for the fourth consecutive year — adding net proved reserves of 282 million barrels of oil equivalent (mmboe) while producing 124 mmboe during 2005. Over the past three years, Marathon’s reserve replacement has averaged 175 percent. At year end, Marathon had estimated proved reserves of 1,295 mmboe.
Marathon continued its successful exploration program in 2005, resulting in eight significant discoveries, and announced its 12th deepwater discovery in its highly successful Angola exploration program.
Although the 2005 hurricane season caused production to be shut-in for the equivalent of approximately 47 days in the Gulf of Mexico, and higher than expected downtime in certain non-operated facilities lowered production results, these were more than offset by better than expected performance in Equatorial Guinea and Russia. For the year, Marathon averaged 346,000 boepd, or approximately 3 percent growth over 2004 production rates. Upstream segment income was $3 billion.
In Russia, strong performance from the East Kamennoye field has driven production from an average of 15,000 bpd in May 2003 to more than 30,000 bpd by year-end 2005. Also, Marathon stepped up North American production activity in 2005 by expanding development activity at Mimms Creek in east Texas and securing an acreage position in the Barnett Shale in central Texas. Marathon is committed to expanding its North American oil and gas opportunities where it currently produces approximately half of its total worldwide production.
Returning to Libya
In a major development, Marathon reached agreement with the National Oil Corporation of Libya to return to oil and gas exploration and production operations in the Waha concessions after a 19-year absence. The concessions, encompassing almost 13 million acres in the prolific Sirte Basin, currently produce approximately 350,000 gross bpd and contain sizable undeveloped oil and gas resources.
Marathon added 165 mmboe to the Company’s proved reserves as a result of re-entry into Libya, and is expected to add 40,000 to 45,000 net bpd of production during 2006. Including Libya, Marathon’s production rates for 2006 are anticipated to be between 365,000 and 395,000 boepd.
Successful Project Execution
Marathon continued successful execution of major development projects during 2005. The Company completed gas condensate and liquefied petroleum gas expansions in Equatorial Guinea, boosting total liquids production to between 80,000 and 90,000 gross bpd (45,000 to 50,000 net bpd). This compares to gross liquid sales of 18,000 bpd (10,000 net bpd) when Marathon acquired interest in the Alba field.
Offshore Norway, the Alvheim/Vilje developments continue on schedule for first production in early 2007. This floating production, storage and offloading project is expected to reach more than 50,000 net boepd and become a hub for other subsea developments.
During 2005, Marathon announced the sanctioning of the Neptune development in the Gulf of Mexico, where it holds a 30 percent interest and production is scheduled to begin in late 2007 or early 2008.
